The pay-what-you-want business model: Warm glow revenues and endogenous price discrimination

R. Isaac, John Lightle and Douglas A. Norton

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2015, vol. 57, issue C, 215-223

Abstract: We explore the potential benefits of an up-and-coming business model called “pay-what-you-want” in an environment where consumers experience a warm glow by patronizing a particular firm. We show that, given a social norm regarding minimum contributions, a pay-what-you-want firm should announce a minimum suggested contribution, which is positive—but smaller than the profit-maximizing single price—so as to benefit from “endogenous price discrimination,” whereby consumers differentially contribute more than the suggested minimum. Furthermore, a pay-what-you-want scheme can improve market efficiency and, in special cases, generate more profit than a standard posted price scheme. These results are robust to alternate motivations for generosity, including gift-exchange.

Keywords: Warm glow; Price discrimination; Social norm; Charity; Monopoly (search for similar items in EconPapers)
JEL-codes: D03 D42 D64 L11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:57:y:2015:i:c:p:215-223

DOI: 10.1016/j.socec.2015.02.003

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